Gina Production Company uses a standard costing system.The following information pertains to the current year:
$\begin{array}{llr}
\text {Actual factory overhead costs $ (\$ 16,500 $ is fixed) } &\$40,125\
\text { Actual direct labour costs (11,250 hours) } &\$131,625\
\text { Standard direct labour for 5,500 units: } &\
\text {Standard hours allowed } &\text { 11,000 hours} \
\text {Labour rate } &\$12.00\
\end{array}$
The factory overhead rate is based on an activity level of 10,000 units.Standard cost data for 5,000 units is as follows:
$\begin{array}{lr}
\text { Variable factory overhead } & \$ 22,500 \
\text { Fixed factory overhead } & \underline{13,500} \
\text { Total factory overhead } & \underline{\$ 36,000} \
\end{array}$ What is the fixed overhead volume variance for Gina Production Company?
A)$1,350 (F)
B)$1,350 (U)
C)$3,600 (F)
D)$4,125 (U)

Question

Gina Production Company uses a standard costing system.The following information pertains to the current year: 
$\begin{array}{llr}
  \text {Actual factory overhead costs $ (\$ 16,500 $ is fixed)  } &\$40,125\
 \text { Actual direct labour costs (11,250 hours) } &\$131,625\
 \text { Standard direct labour for 5,500 units: } &\
 \text {Standard hours allowed  } &\text {  11,000 hours} \
 \text {Labour rate  } &\$12.00\
\end{array}$
 The factory overhead rate is based on an activity level of 10,000 units.Standard cost data for 5,000 units is as follows:
$\begin{array}{lr}
\text { Variable factory overhead } & \$ 22,500 \
\text { Fixed factory overhead } & \underline{13,500} \
\text { Total factory overhead } &  \underline{\$ 36,000} \
\end{array}$ What is the fixed overhead volume variance for Gina Production Company?
A)$1,350 (F)
B)$1,350 (U)
C)$3,600 (F)
D)$4,125 (U)

Quizplus · Accepted Answer

The fixed overhead volume variance is calculated as follows:Fixed overhead volume variance = (Actual fixed overhead - Budgeted fixed overhead)Budgeted fixed overhead = Standard fixed overhead rate x Actual activity levelStandard fixed overhead rate = Fixed overhead / Standard activity levelFixed overhead = $13,500Standard activity level = 10,000 unitsActual activity level = 5,500 unitsBudgeted fixed overhead = $13,500 x 5,500 units = $74,250Actual fixed overhead = $16,500Fixed overhead volume variance = ($16,500 - $74,250) = $1,350 (F)

Gina Production Company Uses a Standard Costing System The Factory Overhead Rate Is Based on an Activity Level